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Archive for the ‘Big Government’ Category

Back in 2020, I warned that then-Mayor Bill de Blasio was setting the stage for fiscal crisis.

During his eight years in office, he violated fiscal policy’s golden rule by increasing the burden of government spending at three times the rate of inflation.

And all that spending requires lots of taxes, which helps to explain why residents were escaping New York City even before the pandemic.

But the pandemic accelerated the exodus, and that is turning a bad fiscal situation into a terrible fiscal situation for the new Mayor, Eric Adams.

Reporting for the New York Times, Nicole Hong and  write about how rich people (and their tax revenue) have been escaping New York City.

…roughly 300,000 New York City residents left during the early part of the pandemic… Now, new data from the Internal Revenue Service shows that the residents who moved to other states by the time they filed their 2019 taxes collectively reported $21 billion in total income, substantially more than those who departed in any prior year on record. …a potential loss that could have long-term effects on a city that relies heavily on its wealthiest residents to support schools, law enforcement and other public services. …The top 1 percent of earners, who make more than $804,000 a year, contributed 41 percent of the city’s personal income taxes in 2019. …The exodus to Florida was especially robust, and not just for the retiree crowd. …The pandemic accelerated the relocation of several New York-based financial firms to new offices or headquarters in Florida. …The Manhattan residents who moved to Palm Beach County had an average income of $728,351, IRS data showed.

So why are people leaving the City?

Some of it was temporary, caused by the pandemic.

But it’s very likely that most high-income emigrants won’t return. Why? Because New York City has bad governance. Everything from big problems like crummy schools to small problems like regulatory overkill.

So why pay lots of taxes when you get very little in return?

In a column last year for the New York Post, Nicole Gelinas warned about job losses in the financial industry.

…the city’s financial-industry jobs (not including real estate) were down 5 percent, to 338,800, compared with pre-COVID August 2019. Commercial-banking jobs are down 7 percent, to 67,300. Investment-related jobs are also down 7 percent, to 177,600. If we weren’t distracted by huge, double-digit percentage losses in other parts of the city’s economy, like arts and entertainment, these would be big numbers. …Some of this job destruction is a gain for other states. In Florida, financial jobs…are up 6 percent since August 2019, to 422,000. …yet another small investment firm, ARK, said it would close its New York headquarters and move…, with most of its dozens of workers going. …We used to fret about what happened when Wall Street crashed; now, we should fret that we have these woes when Wall Street hasn’t crashed.

When jobs are lost, that’s bad news for politicians because they miss out on tax revenue. And that’s true if jobs simply disappear and it’s true if the jobs move to low-tax states like Florida.

And it’s a big problem because Mayor Adams inherited a big mess. Simply stated, revenues are running away at the same time that spending is going up.

Emma Fitzsimmons wrote for the New York Times that the former Mayor’s legacy is a bloated city budget, which is connected to an ever-expanding bureaucracy.

Bill de Blasio will be remembered for many things…But one central element of his administration has received less attention: his passion for spending money. Under Mr. de Blasio, the city’s budget has soared to a record $102.8 billion, and the city work force rose to more than 325,000 employees, its highest level ever. His final budget, more than $25 billion higher than his first budget in 2014… Mr. de Blasio’s spending spree could create problems for Mr. Adams… The city work force…quickly began to rise…after Mr. de Blasio took office — pleasing the city’s municipal unions, some of which were major donors to the mayor’s political endeavors. …The increases to the city work force will create long-term costs for the city for health care, pensions and retiree benefits.

I can say “I told you so” because I warned that de Blasio was bad news when he was running for office in 2013.

Now the chickens are coming home to roost.

P.S. Just as many states compete to be the worst, the same is true for cities. Yes, New York City is a mess, but is it better or worse than places such as Chicago, SeattleMinneapolisDetroit, and San Francisco?

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What’s the most depressing chart in the world?

If you believe in limited government and you’re looking back in time, this example or this example are good candidates.

But if we’re looking into the future, this chart from a new study by the European Central Bank is very sobering.

And it’s a depressing chart because it doesn’t matter whether you believe in big government or small government. That’s because this chart shows a dramatic shift in population demographics.

Simply stated, Europe’s welfare states are in deep trouble because over time there will be fewer and fewer workers to pay taxes and more and more old people expecting benefits.

Here’s what the ECB experts, Katalin Bodnár and Carolin Nerlich, wrote about their findings.

The euro area, like many other advanced economies, has entered an era of drastic demographic change. …Declining birth rates and rising life expectancy are causing the number of pensioners to increase relative to workers. In the next one and a half decades, this trend will be amplified as the sizeable baby boom generation enters retirement and the cohort of workers shrinks. …The old-age dependency ratio is projected to reach almost 54% by 2070… If left unaddressed, population ageing will pose a burden on public finances in the euro area, given the relatively strong role of publicly financed pension and health care systems. Debt sustainability challenges might arise from mounting ageing-related public spending, which will be particularly a concern in high debt countries.

That last sentence in the above excerpt should win a prize for understatement of the year.

Many of Europe’s welfare states already are on the verge of crisis. And as demographics change over time (findings replicated in the European Commission’s Ageing Report), they will go from bad to worse.

Here’s a breakdown of how the “age dependency ratio” will change in various nations.

By the way, if you look at the right side of Chart 4, you’ll see Japan’s horrible numbers as well as a worrisome trend for the United States.

Most people focus on how demographic change will lead to more debt.

I think it’s more important to focus on the underlying problem of government spending.

This next chart combines both. The vertical axis shows the increase in age-related government spending while the horizontal axis shows debt levels.

The bottom line is that countries in the top-right quadrant are in deep trouble. Especially in the long run (though Italy could go belly-up very soon).

The ECB report does suggest ways to address this looming crisis.

To safeguard against the adverse economic and fiscal consequences of population ageing, there is a need to build-up fiscal buffers during good economic times, to improve the quality of public finance and to implement growth-enhancing structural reforms. …Further pension reforms are needed that encourage workers to postpone their retirement.

Don’t hold your breath waiting for any of these things to happen. Building up “fiscal buffers” means running surpluses today to offset deficits tomorrow. But European nations are running big deficits because of excessive spending today, so there will be no maneuvering room in the future.

P.S. Here’s some comedy (and more comedy) about Europe’s fiscal mess.

P.P.S. It is possible to reduce large debt burdens, so long as governments simply restrain spending.

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In Part I, I warned that “stakeholder capitalism” is not just empty virtue signaling. Some advocates are using the concept to promote a statist agenda.

For Part II, let’s start with this video.

The main message of the video is that ethical profits are good for shareholders, but also good for everyone else (the supposed stakeholders).

By contrast, companies that don’t prioritize profits wind up hurting workers and consumers, not just the company’s owners (i.e., shareholders).

Let’s dig deeper into this topic.

Stakeholder theory reflects the more interventionist approach of continental Europe’s “civil law” while the shareholder approach is more consistent with the “common law” approach of the Anglosphere (the United Kingdom and many of its former colonies, including the United States).

That’s a key observation in Samuel Gregg’s column for Law & Liberty, which reviews a book by Professor Nadia E. Nedzel.

…stakeholder theory reinforces continental European rule through law inclinations and vice-versa, not least because of shared hard-communitarian foundations. …Such goals undermine the ability of corporations to produce prosperity. An emphasis on stability and maintaining levels of employment, for instance, exacts a cost in terms of organizational dynamism, not least by discouraging risk-taking and entrepreneurship. …Without such adjustments, however, a business will become complacent and uncompetitive. Eventually it will disappear, along with all the jobs once provided by the business. Likewise, if boards of directors are not focused on delivering shareholder value because profit is considered only one of many company objectives, a decline in earnings is sure to follow. …To the extent that stakeholder theory draws upon hard-communitarian principles which it shares with continental European rule through law models, it risks undermining already fragile commitments to rule of law in America and elsewhere. That’s just one more reason to shore up the priority of shareholder interests throughout corporate America. These priorities help explain the weaker economic performance of many corporations in civil law jurisdictions compared to those businesses located primarily in the Anglo-American sphere.

Allison Schrager of he Manhattan Institute wrote for the City Journal that Biden is on the wrong side and that his mistake, along with others, is failing to understand that so-called stakeholders benefit when companies are profitable.

…one thing that stood out was Biden’s vow to “put an end to the era of shareholder capitalism.” …disdain for the notion that a corporation’s primary objective is to maximize value for its shareholders has united the disparate likes of Elizabeth Warren and Bernie Sanders and the Davos/Larry Fink crowd. It’s no surprise that Joe Biden is against it, too. …Maximizing shareholder value…does not create conflicts between different stakeholders, because economic success is not zero-sum. …long-term success requires happy and loyal employees, a healthy relationship with the community, and a thriving environment.

In a column for the Wall Street Journal, Lucian A. Bebchuk and Roberto Tallarita shared their research showing that CEOs who pontificate about stakeholders don’t actually change their behavior.

…we dug deeper, investigating an array of corporate documents for the 136 public U.S. companies whose CEOs signed the statement. …we found evidence that the signatory CEOs didn’t intend to make any significant changes to how they do business. …We’ve identified almost 100 signatory companies that updated their corporate governance guidelines by the end of 2020. We found that the companies that made updates generally didn’t add any language that elevates the status of stakeholders, and most of them reaffirmed governance principles supporting shareholder primacy. …We also found that about 85% of the signatory companies didn’t even mention joining the “historic” statement in their proxy statements sent to shareholders the following year. Among the 19 companies that did mention it, none indicated that joining the statement would cause any changes to how they treat stakeholders.

Speaking of insincere hypocrites, that’s a good description of the Davos crowd. Matthew Lesh of the Adam Smith Institute wrote about their trendy support for stakeholders in a column for CapX.

…the man behind the World Economic Forum has declared that Covid warrants a ‘Great Reset’. With tedious predictability, Klaus Schwab’s bogeymen are the twin menaces of “neoliberal ideology” and “free market fundamentalism”. …he’s also calling for a “stakeholder model of corporate capitalism”… But it’s an idea based on a false dichotomy. A business that fails to return a profit to its shareholders cannot do anything for its other stakeholders, such as providing useful products to customers, paying its staff, procuring from suppliers… Delivering for shareholders is ultimately indivisible from benefiting your other ‘stakeholders’ because you can’t do one without the other. …Shivaram Rajgopal of Columbia Business School has found that top European companies who brandish their social and environmental credentials do no better in these criteria than American companies. But the European firms are much worse at ensuring good corporate governance. For example, worker representation on Germany’s supervisory boards has often meant worker representatives teaming up with managers to push against new technology and methods. In the longer run, this undermines returns to shareholders, but also means poorer products for customers, lower salaries for employees.

The bottom line is that there are lots of misguided attacks against capitalism, but none of the criticisms change the fact that free enterprise is the only system to ever deliver mass prosperity to ordinary people.

And that’s true even if big companies don’t support the system that enabled their very existence (perhaps because they fear they will got knocked from their perch by the the forces of “creative destruction“).

P.S. Just like yesterday, I can’t resist adding this postscript about the left-leaning executive who thought he was rejecting Milton Friedman, but actually did exactly as Friedman recommended.

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My warm and fuzzy feelings for “capitalism” turn sour when someone promotes a modified version such as “common-good capitalism.”

Why? Because I worry such terms imply a Trojan Horse for statism. And that’s definitely the case with so-called “stakeholder capitalism.”

As you can see, my core argument is that stakeholder capitalism is just another way of saying cronyism. And if I was being lazy, I would simply point out that Elizabeth Warren is a big proponent of the idea. That, by itself, should convince every thinking person that it’s a bad idea.

But I’m not going to be lazy. I’m going to cite some experts to show why stakeholder capitalism is bad news.

But first, I mentioned Milton Friedman’s famous quote in the above video clip.

Here’s the full quote, and notice that he explicitly says companies should follow rules – both legal and ethical – as they pursue profits.

Friedman was advocating what is sometimes referred to as “shareholder capitalism,” which is the notion that a company should strive to earn honest profits for its owners.

So what, then is stakeholder capitalism? In a column for the Wall Street Journal, Professor Alexander William Salter warns us that it is an invitation for intervention.

…beneath the lofty rhetoric, stakeholder capitalism is mostly a front for irresponsible corporatism. …Stakeholder capitalism is used as a way to obfuscate what counts as success in business. By focusing less on profits and more on vague social values, “enlightened” executives will find it easier to avoid accountability even as they squander business resources. While trying to make business about “social justice” is always concerning, the contemporary conjunction of stakeholder theory and woke capitalism makes for an especially dangerous and accountability-thwarting combination. …profits are an elegant and parsimonious way of promoting efficiency within a business as well as society at large. Stakeholder capitalism ruptures this process. When other goals compete with the mandate to maximize returns, the feedback loop created by profits gets weaker.

Writing for the Washington Post, George Will has a similarly scathing assessment.

…everyone who values economic dynamism, and the freedom that enables this, should recoil from the toxic noun “stakeholder.” …Stakeholder capitalism violates fiduciary laws that require those entrusted with investors’ money to employ it “solely in the interest of” and “for the exclusive purpose of providing benefits to” the investors. …In a dynamic society, resources are efficiently disposed by corporate managements whose primary duty, which other corporate activities do not compromise, is to maximize shareholder value… Self-proclaimed stakeholders, parasitic off others’ labor and accumulation, assert that everything is their business.

In a column for the Wall Street Journal, Phil Gramm and Mike Solon point out that today’s stakeholder capitalism is very similar to feudalism, which was a pre-industrial form of socialism.

…because of the misery Marxism has imposed, the world has a living memory and therefore some natural immunity to a system in which government takes the commanding heights of the economy. No such immunity exists to the older and therefore more dangerous socialism of the pre-Enlightenment world. In the communal world of the Dark Ages, the worker owed fealty to crown, church, guild and village. Those “stakeholders” extracted a share of the product of the sweat of the worker’s brow and the fruits of his thrift. …The 18th-century Enlightenment liberated…people to…own the fruits of their own labor and thrift. …These Enlightenment ideas spawned the Industrial Revolution and gave birth to the modern world… Remarkably, amid the recorded successes of capitalism and failures of socialism rooted in Marxism, pre-enlightenment socialism is re-emerging in the name of stakeholder capitalism. …the biggest losers in stakeholder capitalism are workers, whose wages will be cannibalized.

Amen. The only economic system to ever produce mass prosperity for workers is capitalism (or, if you prefer, free enterprise or classical liberalism).

And the pursuit of profit is what generates efficiency, which is economic jargon for higher living standards. And that’s good for rich people and poor people.

The bottom line is that I’m not surprised when politicians support so-called stakeholder capitalism. After all, the crowd in Washington likes to have more power.

Based on what I said at the end of the above video, I’m disappointed – but not surprised – when big businesses (such as the Business Roundtable or Larry Fink of Blackrock) embrace the idea. After all, “creative destruction” is not so appealing when you’re already as the top.

P.S. I was very amused by the left-leaning CEO who criticized Friedman, but then did exactly as Friedman recommended.

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Yesterday’s column discussed Caterpillar’s decision to move its headquarters from high-tax Illinois to low-tax Texas.

Today, we have more bad news for the Prairie State.

A major investment fund, Citadel, also has decided to leave Illinois.

Is the company moving to a different high-tax state, perhaps California or New York? Maybe Connecticut or New Jersey?

Nope. Citadel is going to Florida, a state famous for having no income tax.

The Wall Street Journal opined this morning about Citadel’s move.

The first step to recovery is supposed to be admitting you have a problem. But Illinois Gov. J.B. Pritzker still won’t, even after billionaire Ken Griffin on Thursday said he’s moving his Citadel hedge fund and securities trading firm to Miami from Chicago. …Meantime, Democrats in Springfield continue to threaten businesses and citizens with higher taxes… It’s no wonder so many companies and people are leaving, and mostly to low-tax states. …In 2020, $2.4 billion in net adjusted gross income moved to Florida from Illinois, about $298,000 per tax filer. …Mr. Griffin has spent tens of millions of his personal fortune trying to rescue Illinois from bad progressive governance. Maybe he figures it’s time to cut his losses.

Other (former) Illinois residents cut their losses last decade.

Scott Shackford of Reason shared grim data at the end of 2020 about the ongoing exodus from Illinois.

For the seventh year in a row, census figures show residents moving out of Illinois in significant numbers. …Perhaps demanding that your excessively taxed residents give the government even more money is not the best way to keep those residents in your state… Over the course of the last decade, Illinois lost more than a quarter-million people…not even California…has seen Illinois’ population loss. …Government leaders have responded not with better fiscal management (the state’s powerful unions blocked pension reforms), but with more taxes and fees, even as residents leave.

The bottom line is that Illinois is currently losing people and businesses.

Just as it lost people and businesses last decade.

And you can see from this map that taxpayers also were fleeing the state earlier this century.

I’m guessing the state’s hypocritical governor probably thinks this is a good thing because the people who left probably didn’t vote for tax-and-spend politicians.

But that’s a very short-sighted viewpoint.

After all, parasites need a healthy host. If you’re a flea or a tick, it’s bad news if you’re on a dog that dies.

As Michael Barone noted many years ago, that’s a lesson that Illinois politicians haven’t learned.

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I wrote a couple of days ago about California’s grim future.

But now I’ll share some good news. No matter how bad California gets, the Golden State probably won’t have to worry about people and businesses fleeing to Illinois.

That’s because the Prairie State is an even bigger mess. If California is committing “slow motion suicide,” Illinois is opting for the quickest-possible fiscal demise.

Politicians in Springfield (the Illinois capital) have a love affair with higher taxes. A very passionate love affair.

But the state’s productive people have a different point of view. More and more of them have been escaping.

And they are now being joined by the state’s most-famous company, as Matt Paprocki of the Illinois Policy Institute explains in a column for the Washington Post.

When Boeing announced last month that it was moving its headquarters from Chicago to Arlington, Va., it sent shudders through the Illinois business community and state capital. But last week, when the heavy-equipment manufacturer Caterpillar said it was moving its headquarters to Texas, it felt more like a bulldozer ramming into the news. …If you’re an Illinois business owner or resident, as I am, the economics of staying are tough and the enticements to move away are many. …According to the U.S. Census Bureau, last year the state had the third-largest loss of residents due to domestic migration in the nation (-122,460), trailing only California and New York.

It’s easy to understand why people and businesses are leaving.

In 2017, Illinois lawmakers raised the personal income tax rate to 4.95 percent, from 3.75 percent, and hiked the corporate rate to 7 percent, from 5.25 percent. When J.B. Pritzker took office as governor in 2019, he passed another 24 tax and fee hikes costing taxpayers over $5 billion. …With 278,475 regulatory restrictions and requirements — double the national average — Illinois has the third most heavily regulated environment in the country. …Illinois owes over $139 billion in state pension debt as of last year, and local governments owe about $75 billion, which is the primary driver for Illinois’ spiraling property taxes, second-highest in the nation.

Mr. Paprocki offers all sorts of suggestions for reform, including a spending cap.

But the chances of pro-growth reform are effectively zero. The governor is a hard-core leftist (as well as a hypocrite) and the state legislature is controlled by government employee unions.

So if you’re hoping for a TABOR-style spending cap, there’s little reason to be optimistic.

And if you’re hoping for reforms that will improve the state’s “least friendly” tax climate, don’t hold your breath.

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I’ve been warning for many years that California is committing “slow-motion suicide.” I discussed the not-so-golden future of the Golden State as part of a longer interview with Chile’s Axel Kaiser.

If you don’t want to spend a couple of minutes to watch the interview, the key takeaway is that California has lots of natural advantages, but the state is suffering from too much government.

Both fiscal policy and regulatory policy are a nightmare, and the net result is that people and business are now leaving the state.

I wrote about the state’s problems back in January, and I also addressed the link with California’s bad policy in columns in 2016 and 2020.

So instead of regurgitating some of my thoughts, let’s use today’s column to see what others have written.

For instance, Joel Kotkin wrote a very depressing assessment of California for Real Clear Investigations.

…most Californians, according to recent surveys, see things differently. They point to rising poverty and inequality, believe the state is in recession and that it is headed in the wrong direction. …Reality may well be worse… In a new report for Chapman University, my colleagues and I find California in a state of existential crisis, losing both its middle-aged and middle class, while its poor population faces dimming prospects. …Worse than just a case of progressive policies creating regressive outcomes, it appears California is descending into something resembling modern-day feudalism… California also suffers the widest gap between middle- and upper-middle-income earners of any state. …California lags all peer competitors – Texas, Arizona, Tennessee, Nevada, Washington and Colorado – in creating high wage jobs in fields like business and professional services… California’s “renewable energy” push has generated high energy prices and the nation’s least-reliable power grid… The state now ranks 49th in homeownership rate… California ranked 49th in the performance of poor, largely minority, students. …since 2000, California has lost 2.6 million net domestic migrants… In 2020, California accounted for 28 percent of all net domestic outmigration in the nation.

In a column for the Washington Examiner, Cole Lauterbach shares some of the findings from a new study published by the Hoover Institution.

A report studying business headquarter migration says California’s businesses are moving their centers of operations at a much higher rate in 2021 compared to previous years. …The authors use several different sources to track business migration out of the state, finding the number of companies who either announce or file that they’re in another state has risen sharply… The authors stress that the numbers are likely understated since smaller companies aren’t required to disclose a move. In their research, the authors found “high tax rates, punitive regulations, high labor costs, high utility and energy costs, and declining quality of life for many Californians which reflects the cost of living and housing affordability,” as reasons for the moves. …The most common destinations for states leaving California are Texas, Arizona and Nevada.

Notice, by the way, that Texas and Nevada have no income tax and Arizona has a low-rate flat tax.

But let’s keep the focus on California’s overall problems.

Conor Friedersdorf, in an article for the Atlantic, offers a grim assessment of the Golden State.

This place inspires awe. If I close my eyes I can see silhouettes of Joshua trees against a desert sunrise; seals playing in La Jolla’s craggy coves of sun-spangled, emerald seawater; fog rolling over the rugged Sonoma County coast at sunset into primeval groves of redwoods that John Steinbeck called “ambassadors from another time.” …Yet I fear for California’s future. …the state’s leaders and residents shut the door on economic opportunity… Indeed, blue America’s model faces its most consequential stress test… the Institute for Justice, a public-interest law firm, released a report on barriers to work that disproportionately affect the middle and working classes. “California is the most broadly and onerously licensed state,” the report found, and is also “the worst licensing environment for workers in lower-income occupations.” …a survey of 383 CEOs by Chief Executive magazine, which weighed regulations and tax policy above all other metrics, ranked California the worst state for business, and Forbes ranked it among the worst for its high business costs and stifling regulatory environment.

Speaking of regulatory environment, California’s screwy approach to marijuana legalization/taxation tells you everything you need to know about the state.

P.S. If you want to laugh about California’s plight, click here, here, here, here, here, here, and here.

P.P.S. My seven-part series comparing Texas and California appeared in March 2010February 2013April 2013October 2018June 2019, December 2020, and February 2021.

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At the risk of understatement, big government has a dismal track record of imposing higher costs on the private sector, both directly and indirectly.

Which is why this cartoon definitely belongs in my mock-government collection (along with this one and this one).

Simply stated, free markets produce efficiency and lower costs while government produces inefficiency and higher costs.

So it was particularly galling that President Biden is engaging in demagoguery against oil companies. Peter Baker and Clifford Krauss of the New York Times report on a letter that he sent to some of their CEOs.

President Biden chastised some of the largest oil companies for profiteering off surging energy prices and “worsening that pain” for consumers… With the average price of gas in the United States topping $5 a gallon for the first time, Mr. Biden pointed the finger at energy firms in a letter to seven top executives… “At a time of war, refinery profit margins well above normal being passed directly onto American families are not acceptable,” Mr. Biden said in the letter.

The trade association for the oil industry got the chance to respond and noted that the federal government is hindering energy development.

Mike Sommers, president of the American Petroleum Institute, countered that the administration shared the blame for higher energy prices and called for approval of new drilling leases and approval of “critical energy infrastructure” like pipelines.

I’m sure the Biden Administration has not been helpful, but I want to make a bigger point.

If the President wants to know who “profiteers” from the energy industry, he should look in the mirror.

Courtesy of Wikipedia, here’s a chart of federal gas taxes over time.

But Uncle Sam is not the biggest profiteer.

Almost every state government grabs even more every time we fill up. Here’s a map from the Tax Foundation.

Let’s close by acknowledging that the official position of both the Democratic Party and the International Monetary Fund is that higher energy prices are a good thing.

P.S. From the archives, here’s some gallows humor about energy prices.

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Echoing remarks earlier this month to a group in Nigeria, I spoke today about fiscal economics to the 2022 Africa Liberty Camp in Entebbe, Uganda.

During the Q&A session, I was asked to specify the ideal amount of government spending. I addressed that issue in an April interview while visiting Spain.

You’ll notice that I didn’t give a specific number in the above video. Just like I didn’t give a specific number to the audience in Uganda.

That’s because there is not an exact answer. The only thing we can definitively state is that government in most nations should be far smaller than it is today.

This is illustrated by the “Rahn Curve,” which I discussed both in the interview and in my speech today.

What is the Rahn Curve? Here’s some of what I wrote back in 2015.

…it shows the non-linear relationship between the size of government and economic performance. Simply stated, some government spending presumably enables growth by creating the conditions (such as rule of law and property rights) for commerce. But as politicians learn to buy votes and enhance their power by engaging in redistribution, then government spending is associated with weaker economic performance because of perverse incentives and widespread misallocation of resources.

And here’s a visual depiction of the Rahn Curve. The upward-sloping part of the curve shows that spending on genuine public goods is associated with more prosperity. But once government budgets exceed a certain level, additional spending means weaker economic performance.

In the above graph, I show that growth is maximized when government consumes about 15 percent-20 percent of economic output.

But I actually think prosperity would be maximized if government was a smaller burden, perhaps about 5 percent-10 percent of GDP.

In 2017, I explained the appropriate role of government in a libertarian society. My analysis was based on my “minarchist” views, which imply government only spends money for national defense and rule of law.

By contrast, my anarcho-capitalist friends would say we don’t need any government.

Meanwhile, moderate libertarians (or conservative Republicans) might be amenable to having state and local governments play a role in education and infrastructure.

The bottom line is that I think growth would be maximized if government consumes – at most – 10 percent of economic output (which was the size of government in the 1800s when the Western world became rich).

But I will be happy with any progress (particularly since government is projected to become an even bigger burden if left on autopilot).

If you want to watch more videos related to the Rahn curve, there are many options.

P.S. Here’s my response to a critic from the left.

P.P.S. Interestingly, some normally left-leaning international bureaucracies have acknowledged you get more prosperity with smaller government. Check out the analysis from the IMF, ECB, World Bank, and OECD.

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For those who read these columns on my website, you presumably have noticed that I have a rotating banner at the top of the page.

One of the options is a quote from Milton Friedman about the blundering inefficiency of Washington.

Though I believe in fairness. I also have periodic columns about the incompetence of local governments, state governments, and foreign governments.

The bottom line is that if someone thinks government is the answer, I definitely think they’ve asked the wrong question.

But that doesn’t stop some people from a knee-jerk belief in bigger government. In an article for the Jacobin, Nick French wants the government to take over dating apps.

I’m not joking. Here is some of what he wrote.

…the longer I use these dating apps, the stranger the whole experience feels. …what matters to the app owners is not getting their users good dates. What matters is that they can make money off of us. …We could consciously uncouple our dating lives from the tyranny of the profit motive, though — with publicly owned apps that will democratize how we meet people online. …companies profiting from user data handsomely without compensating users smacks of exploitation. After all, if it’s my app use that generates data and therefore profits for the company, aren’t I entitled to a share of that value I created? …it does seem strange that questions about the implications of dating for social justice should be left in the hands of Silicon Valley MBAs — whose ultimate motivation, of course, is to turn a profit. Questions about how to deal with bias or prejudice in dating apps would be far better off as a matter for public, democratic deliberation.

For what it’s worth, profit-seeking companies have an incentive to give customers what they want.

Based on the performance of bureaucracies such as the Postal Service, I suspect we’ll all live celibate and lonely lives if the government takes over apps like Tinder and Bumble.

And that would be the case regardless of whether we have government-run dating apps (socialism) or government-controlled dating apps (fascism).

Mr. French seems open to either approach.

What might that look like? It doesn’t necessarily mean establishing a government-run National Dating Service or taking Tinder under state control. …but what exactly this “platform socialism” looks like will differ from platform to platform. …Users could collectively deliberate about the possible impacts of different choices, from the perspectives of social justice as well as users’ individual well-being. …the state would have an important role to play: in providing public funding for the development of cooperatively owned dating apps.

By the way, some governments already try to play matchmaker.

…some countries are already paying to set up their own dating services. The Singaporean government’s Ministry of Social and Family Development has a webpage devoted to helping the uncoupled find partners; it advertises a government-run online dating portal, officially accredited dating agencies, and a “Partnership Fund”

I’m usually a fan of Singaporean economic policy, but obviously I don’t think governments have the ability to boost marriage and fertility (but at least they don’t go overboard like Hungary).

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Based on research from the Congressional Budget Office, I’ve shared estimates of the potential economic damage from the fiscal plan Joe Biden unveiled last year.

But now he has a new budget. So what if we simply focus on the tax portion of that plan and ignore all the new spending?

The Tax Foundation has crunched the numbers from Biden’s tax agenda and has published some very sobering numbers about this latest version of the President’s class-warfare proposals.

What caught my attention was this chart showing the United States (light-blue bars) already is out of whack with major competitors and trading partners (green bars) – and Joe Biden wants to make a bad situation much worse (red bars).

And when I write “out of whack,” that’s not an idle statement.

it turns out that the United States would have the highest income tax rates in the world.

Higher than Greece. Higher than France. Higher than Italy. Here are some of the grim details.

…the tax increases in the Build Back Better Act (BBBA)…would raise revenues by $4 trillion on a gross basis over the next decade. The Biden tax increases in the budget and BBBA would come at the cost of economic growth, harming investment incentives and productive capacity… The budget proposes several new tax increases on high-income individuals and businesses, which combined with the BBBA would give the U.S. the highest top tax rates on individual and corporate income in the developed world… Taxing capital gains at ordinary income tax rates would bring the combined top marginal rate in the U.S. to 48.9 percent, up from 29.2 percent under current law and well-above the OECD average of 18.9 percent. …Raising the corporate income tax rate to 28 percent would once again bring the U.S. near the top of the OECD at a combined rate of 32.3 percent, versus 25.8 percent under current law and an OECD average (excluding the U.S.) of 22.8 percent.

The good news, relatively speaking, is that the United States would not have the highest aggregate tax burden (taxes as a share of economic output).

And the U.S. would not have the highest tax burden on consumption (no value-added tax in America, fortunately).

But with all of Biden’s new spending (along with the built-in expansions of government that already have been legislated), it may just be a matter of time before the U.S. copies those features of Europe’s stagnant welfare states.

The net result is lower living standards for the American people. The only open question is how far we drop.

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As part of my recent appearance on The Square Circle (we discussed Uvalde police, gun control, and Ukraine), I said that the new Social Security numbers were the under-reported story of the week.

For more details, I was referring to the latest Trustees Report, published yesterday by the Social Security Administration.

Most people, when that annual report is released, focus on when the Social Security Trust Fund runs out of money. But since the Trust Fund only contains IOUs, I view that as a largely irrelevant number.

Instead, I immediately look at Table VI.G9, which shows how much revenue is being collected and how much money is being spent every year.

Here is that data displayed in a chart. The left side shows actual fiscal numbers from 1970 to 2021 while the right side shows the projections between 2022 and 2100.

As you can see in the chart, revenues going into the system (the blue line) are growing rapidly.

But you also can see that Social Security spending (the orange line) is expanding even faster.

And when spending grows faster than revenue, one consequences is more red ink.

This next chart shows that annual deficits between now and 2100 will total $56 trillion.

At the risk of understatement, these two charts should be very sobering. Especially since they only show the taxes, spending, and red ink for Social Security.

If we also add the fiscal aggregates for other entitlement programs, it would be abundantly clear why we face a “crisis” and a “train wreck.”

So how do we solve this mess. I’ve written about the needed reforms for Medicare and Medicaid, so let’s focus today on Social Security.

The ideal approach is to take the current pay-as-you-go entitlement and turn it into a system of personal retirement accounts.

Many nations around the world have adopted this approach, most notably Chile and Australia.

But as I noted two years ago, there will be a big “transition” challenge if the United States decides to modernize.

P.S. I mentioned “public choice” at the end of that clip. You can click here to learn more about the economic analysis of political choices.

P.P.S. I mentioned that Chile and Australia have created personal retirement accounts. You can also learn about reforms in Switzerland, Hong Kong, Netherlands, the Faroe Islands, Denmark, Israel, and Sweden.

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The 21st century has been bad news for America’s taxpayers. Every president (George W. Bush, Barack Obama, Donald Trump, and Joe Biden) has been a big spender.

We obviously can’t give Biden a final grade since he has at least two more years in office (though his performance so far has been dismal – and his so-called Build Back Better is an ongoing threat to fiscal sanity).

But there is comprehensive data allowing us to assess Biden’s three predecessors. Brian Riedl of the Manhattan Institute has a new report that shows what happened to red ink under Bush, Obama, and Trump.

He measures what happened to 10-year deficit projections based on both legislated changes (what laws were enacted during time in office) and changes in economic and technical assumptions (largely driven by unanticipated changes in the economy).

As I’ve repeatedly written, I don’t think we should focus on red ink. What really matters is the burden of government spending.

So I’ve taken Brian’s rigorous analysis and highlighted what happened to government spending during the Bush, Obama, and Trump administrations.

We’ll start with George W. Bush, who approved laws adding almost $4.3 trillion to America’s spending burden.

Then we have Barack Obama, who added $1.4 trillion to America’s spending burden.

Then we have Donald Trump, who added $6 trillion to America’s spending burden.

Here are some final observations about the numbers.

The bottom line is that I wish we could return to the spending restraint that America enjoyed during the final two decades of the 20th century.

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Here are some of America’s main economic problems.

And that’s just a partial list. I’m not asserting that markets produce perfect results. Indeed, markets are a never-ending process of creative destruction.

But what I am stating is that intervention by politicians and bureaucrats almost always leads to bad outcomes.

So you can imagine my angst and disappointment at this recent polling data from Echelon Insights. A plurality thinks the government should “do more.”

I’m tempted to speculate whether 47 percent of Americans are morons.

But let’s take the high road and simply dig into the numbers. Whenever I see polling data, I always check whether the question is properly worded.

Is there any bias? Does the question make sense?

Sadly, I think the above question is relatively straightforward. If the poll has asked a stand-alone question about whether the government should do more, that might have been ambiguous.

After all, the government theoretically could “do more” by reforming entitlements, shutting down useless federal departments, and replacing the corrupt internal revenue code with a flat tax.

But when the poll also gives people the option of answering that the government is doing “too many things,” then it is quite clear that “do more” means bigger government.

In other words, 47 percent of people are…well, let’s just say confused.

Hopefully last year’s Gallup poll is more accurate.

P.S. I can’t resist sharing one other result from the Echelon Insight poll.

Here’s an example of a poll question generating good results (people want more energy production and a smaller burden of government spending), but for illogical reasons.

The problem with this question is that rising prices are caused by bad monetary policy and the only cure is to change monetary policy.

Yet respondents were not given that option.

They may not have given the right answer if the question was worded better, but they never got the chance (I also made this point when looking at different polling data two months ago).

P.P.S. I obviously like this polling data on a spending cap.

P.P.P.S. And I was shocked by this poll about the world’s most pro-capitalist nation.

P.P.P.P.S. For sentimental reasons, I very much approve of this poll.

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Everyone likes the idea of “state capacity,” at least when it means competent, honest government rather than dysfunctional, corrupt government.

But the consensus disappears when some folks argue that you achieve this goal by making government bigger.

It’s especially disappointing when international bureaucracies such as the OECD and IMF argue that poor countries somehow can become richer by imposing higher taxes and increasing the burden of government spending.

At the risk of understatement, that’s nonsense.

But this is not just an issue in developing nations.

In his New York Times column, Ezra Klein worries that his fellow leftists do not pay enough attention to what he perceives to be insufficient state capacity in the United States.

He starts by citing one of Biden’s top economists.

You can’t transform the economy without first transforming the government. …Brian Deese, the director of Biden’s National Economic Council, gave an important speech on the need for “a modern American industrial strategy.” …For decades, the idea has been disreputable, even among Democrats. You don’t want government “picking winners and losers,” as the adage goes. …But societies have richer, more complex goals. …So I won’t say markets failed. We failed. …Deese, in his speech to the Economic Club of New York., declared the debate over: “The question should move from ‘Why should we pursue an industrial strategy?’ to ‘How do we pursue one successfully?’”

He then describes how government fails.

…we need a liberalism that builds. Scratch the failures of modern Democratic governance, particularly in blue states, and you’ll typically find that the market didn’t provide what we needed, and government either didn’t step in, or made the problem worse through neglect or overregulation. …At the national level, much can be blamed on Republican obstruction and the filibuster. But that’s not always true in New York or California or Oregon. It is too slow and too costly to build even where Republicans are weak — perhaps especially where they are weak. …What we have is a government that is extremely good at making building difficult.

And he gives examples of government failure.

The Transit Costs Project tracks the price tags on rail projects in different countries. …the United States is notable for how much we spend and how little we get. It costs about $538 million to build a kilometer of rail here. Germany builds a kilometer of rail for $287 million. Canada gets it done for $254 million. Japan clocks in at $170 million. …The problem isn’t government. It’s our government. …When a government can’t…build the sign-up portal to its new health insurance plan or construct the high-speed rail it’s already spent billions of dollars on, that’s a failure of state capacity.

Klein quotes Nicholas Bagley, a law professor at the University of Michigan, about the “adversary legalism” that makes government slow and inefficient in the United States.

…a way that America differs from peer countries… “Inflexible procedural rules are a hallmark of the American state,” he writes. “The ubiquity of court challenges, the artificial rigors of notice-and-comment rule-making, zealous environmental review, pre-enforcement review of agency rules, picayune legal rules governing hiring and procurement, nationwide court injunctions — the list goes on and on.”

Klein concludes by stating that his side needs to focus not just on ideas, but also on how to reform government so that those ideas can be implemented.

When I go looking for ideas on how to build state capacity on the left, I don’t find much. …health, climate and education plans depend, crucially, on a state capable of designing and executing policy effectively. This is true at the federal level, and it is even truer, and harder, at the state and local level. So this is what I have become certain of: Democrats spend too much time and energy imagining the policies that a capable government could execute and not nearly enough time imagining how to make a government capable of executing them.

In the column, Klein does not offer any concrete solutions, but he does acknowledge that cutting back on “adversary legalism” will cause divisions on the left.

Which sound potentially amusing, but it’s important to acknowledge that libertarians are not united on this topic, either.

Though I’m very skeptical.

As I noted two years ago, my view of state capacity libertarianism is the same as my view of national conservatism. And compassionate conservatismkinder-and-gentler conservatismcommon-good capitalism, and reform conservatism as well.

Before I embrace any trendy new idea, someone needs to show me the tiniest shred of evidence that further reducing economic liberty can lead to more prosperity.

I suppose that’s possible, just as it’s possible I might be playing for the Yankees in the World Series later this year. But neither of those outcomes is likely for those of us who care about real-world evidence.

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Earlier this year, I pointed out that President Biden should not be blamed for rising prices.

There has been inflation, of course, but the Federal Reserve deserves the blame. More specifically, America’s central bank responded to the coronavirus pandemic by dumping a lot of money into the economy beginning in early 2020.

Nearly a year before Biden took office.

The Federal Reserve is not the only central bank to make this mistake.

Here’s the balance sheet for the Eurosystem (the European Central Bank and the various national central banks that are in charge of the euro currency). As you can see, there’s also been a dramatic increase in liquidity on the other side of the Atlantic Ocean.

Why should American readers care about what’s happening with the euro?

In part, this is simply a lesson about the downsides of bad monetary policy. For years, I’ve been explaining that politicians like easy-money policies because they create “sugar highs” for an economy.

That’s the good news.

The bad news is that false booms almost always are followed by real busts.

But this is more than a lesson about monetary policy. What’s happened with the euro may have created the conditions for another European fiscal crisis (for background on Europe’s previous fiscal crisis, click here, here, and here).

In an article for Project Syndicate, Willem Buiter warns that the European Central Bank sacrificed sensible monetary policy by buying up the debt of profligate governments.

…major central banks have engaged in aggressive low-interest-rate and asset-purchase policies to support their governments’ expansionary fiscal policies, even though they knew such policies were likely to run counter to their price-stability mandates and were not necessary to preserve financial stability. The “fiscal capture” interpretation is particularly convincing for the ECB, which must deal with several sovereigns that are facing debt-sustainability issues. Greece, Italy, Portugal, and Spain are all fiscally fragile. And France, Belgium, and Cyprus could also face sovereign-funding problems when the next cyclical downturn hits.

Mr. Buiter shares some sobering data.

All told, the Eurosystem’s holdings of public-sector securities under the PEPP at the end of March 2022 amounted to more than €1.6 trillion ($1.7 trillion), or 13.4% of 2021 eurozone GDP, and cumulative net purchases of Greek sovereign debt under the PEPP were €38.5 billion (21.1% of Greece’s 2021 GDP). For Portugal, Italy, and Spain, the corresponding GDP shares of net PEPP purchases were 16.4%, 16%, and 15.7%, respectively. The Eurosystem’s Public Sector Purchase Program (PSPP) also made net purchases of investment-grade sovereign debt. From November 2019 until the end of March 2022, these totaled €503.6 billion, or 4.1% of eurozone GDP. In total, the Eurosystem bought more than 120% of net eurozone sovereign debt issuances in 2020 and 2021.

Other experts also fear Europe’s central bank has created more risk.

Two weeks ago, Desmond Lachman of the American Enterprise Institute expressed concern that Italy had become dependent on the ECB.

…the European Central Bank (ECB) is signaling that soon it will be turning off its monetary policy spigot to fight the inflation beast. Over the past two years, that spigot has flooded the European economy with around $4 trillion in liquidity through an unprecedented pace of government bond buying. The end to ECB money printing could come as a particular shock to the Italian economy, which has grown accustomed to having the ECB scoop up all of its government’s debt issuance as part of its Pandemic Emergency Purchase Program. …the country’s economy has stalled, its budget deficit has ballooned, and its public debt has skyrocketed to 150 percent of GDP. …Italy has had the dubious distinction of being a country whose per capita income has actually declined over the past 20 years. …All of this is of considerable importance to the world economic outlook. In 2010, the Greek sovereign debt crisis shook world financial markets. Now that the global economy is already slowing, the last thing that it needs is a sovereign debt crisis in Italy, a country whose economy is some 10 times the size of Greece’s.

Mr. Lachman also warned about this in April.

Over the past two years, the ECB’s bond-buying programs have kept countries in the eurozone’s periphery, including most notably Italy, afloat. In particular, under its €1.85 trillion ($2 trillion) pandemic emergency purchase program, the ECB has bought most of these countries’ government-debt issuance. That has saved them from having to face the test of the markets.

And he said the same thing in March.

The ECB engaged in a large-scale bond-buying program over the past two years…, as did the U.S. Federal Reserve. The size of the ECB’s balance sheet increased by a staggering four trillion euros (equivalent to $4.4 billion), including €1.85 trillion under its Pandemic Emergency Purchasing Program. …The ECB’s massive bond buying activity has been successful in keeping countries in the eurozone’s periphery afloat despite the marked deterioration in their public finances in the wake of the pandemic.

Let’s conclude with several observations.

So if politicians won’t adopt good policies and their bad policies won’t work, what’s going to happen?

At some point, national governments will probably default.

That’s an unpleasant outcome, but at least it will stop the bleeding.

Unlike bailouts and easy money, which exacerbate the underlying problems.

P.S. For what it is worth, I do not think a common currency is necessarily a bad idea. That being said, I wonder if the euro can survive Europe’s awful politicians.

P.P.S. While I think Mr. Buiter’s article in Project Syndicate was very reasonable, I’ve had good reason to criticize some of his past analysis.

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As part of my (reality-based) opposition to a value-added tax, I testified to the Ways & Means Committee back in 2011.

My primary argument against the VAT is that it would enable a bigger burden of government spending.

I frequently share this chart, for instance, that shows that the nations in Western Europe were quite similar to the United States back in the 1960s, with government budgets that consumed about 30 percent of economic output.

That was before they enacted VATs.

But once European politicians got that new source of revenue, the spending burden diverged, with the welfare state becoming a much larger burden in Western Europe than in the United States.

In other words, the VAT was a money machine for big government.

That argument is just as accurate today as it was back in 2011.

For today’s column, however, I want to focus on what I said in the last minute of my testimony (beginning about 4:00).

I pointed out that VAT supporters are wrong when they claim that adoption of this new tax would enable reductions in the income tax.

And if you peruse my written testimony, you’ll see that I included several charts showing how tax burdens changed between 1965 and 2008. In every case, I showed that European politicians actually increased the burden of income taxes after they enacted their VATs.

Is that still true?

Of course.

Here’s an updated version of the chart showing that the overall tax burden dramatically increased after VATs were imposed.

In the United States, by contrast, the overall tax burden only increased during this time period from 23.6 percent of GDP to 25 percent of GDP.

Still bad news, but nowhere near as bad as Western Europe, where the overall tax burden jumped by more than 13 percentage points.

Now let’s peruse the updated version of the chart showing what happened to taxes on income and profits.

As you can see, European governments definitely did not use VAT revenues to lower other taxes.

In the United States, by contrast, the tax burden on income and profits only increased during this time period from 11.3 percent of GDP to 11.6 percent of GDP.

Still bad news, but nowhere near as bad as Western Europe, where the tax burden on income and profits jumped by nearly 5 percentage points.

Now let’s peruse the updated version of the chart showing what happened to taxes on corporations (this chart is especially important because there are very naive people in the business community who think that they can avoid higher taxes on their companies if they surrender to a VAT).

As you can see, governments in Europe have been grabbing more money from corporations since VATs were imposed.

In the United States, by contrast, the tax burden on corporations actually decreased during this time period from 3.9 percent of GDP to 1.3 percent of GDP.

By every possible measure, the value-added tax is a big mistake (as even the IMF inadvertently shows).

Unless, of course, politicians first get rid of the income tax – including repealing the 16th Amendment and replacing it with an ironclad prohibition against any future income tax.

But that’s about as likely as me playing the outfield for the New York Yankees in this year’s World Series.

P.S. I mentioned at the very end of my testimony that we did not have clear evidence from other nations that subsequently adopted VATs. In the case of Japan, we now do have data showing how the VAT is financing bigger government.

P.P.S. Some VAT advocates actually claim the levy is good for growth. That’s a nonsensical claim. VATs drive a wedge between pre-tax income and post-tax consumption. What they really mean to say is that VATs don’t do as much damage, on a per-dollar-raised basis, as conventional income taxes (with punitive rates and double taxation).

P.P.P.S. You can enjoy some good anti-VAT cartoons herehere, and here.

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After almost 16 months in office, what is President Biden’s track record on fiscal policy?

The good news is that his big tax-and-spend plan to “build back better” has not been approved by Congress (and fingers crossed that it stays that way).

The bad news is that he has done other things, such as getting a fake stimulus though Congress, as well as a so-called infrastructure package.

The Committee for a Responsible Federal Budget put together an estimate of his major initiatives.

By the way, the CRFB folks fixate on how these initiative impact the deficit. What we really should be concerned about is how much money is being spent.

But let’s set that aside and focus instead on a jaw-dropping claim from the White House.

Even though all of his major initiatives have increased red ink, he is patting himself on the back for lower deficits.

For what it is worth, Biden’s claim is semi-accurate. It is true that budget deficits are temporarily falling.

But not because of him. Instead, red ink is falling because there was massive, one-time, multi-trillion dollar emergency spending for the COVID pandemic in 2020. That spending began to wind down in 2021 and it has mostly dissipated this year, so of course deficits have fallen.

For Biden to take credit for this drop would be akin to Truman taking credit for the big drop in red ink after World War II ended.

Eric Boehm of Reason wrote a column that debunks Biden’s ludicrous claim.

…this year’s budget deficit is forecasted to be the third or fourth-largest in American history—but President Joe Biden claims…his administration is overseeing a period of fiscal austerity. …Here are some words that actually tumbled out of the president’s mouth at a press conference… “We’re on track to cut the federal deficit by another $1.5 trillion by the end of this fiscal year. …on top of us having a $350 billion drop in the deficit last year, my first year as president,” Biden continued. …Those facts, however, exclude a few key details. …Biden took office the year after the budget deficit hit previously unimaginable highs due to a completely unprecedented spending binge triggered by a once-in-a-generation public health disaster. …if you look at the actual budgetary baselines published by the Congressional Budget Office—that is, the ongoing amount of annual federal spending absent any emergency stimulus bills like the ones passed on several occasions during the height of the pandemic—Biden has overseen a noticeable increase in the deficit above the pre-pandemic baseline. According to the Committee for a Responsible Federal Budget, a fiscal watchdog group that advocates for lower deficits, Biden’s policies have added about $2.5 trillion to the deficit over the next 10 years.

Brian Riedl is now with the Manhattan Institute, but we used to work together earlier this century at the Heritage Foundation. One of his admirable traits is that he hasn’t lost the ability to be outraged.

That comes through in his tweet about Biden’s supposed accomplishment.

By the way, I’m not making a partisan point. I have no doubt Trump would have done the same thing.

After all, politicians are probably the least ethical people in the nation. And Washington brings out the worst of the worst.

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Back in 2012, I endorsed a wretched socialist, Francois Hollande, to be president of France.

I knew he was terrible, but the supposedly right-wing incumbent, Nicolas Sarkozy, also was a proponent of dirigisme. As I wrote at the time, “it’s always better to let the left-wing party win when the supposedly right-wing party has a statist candidate.”

In France’s next election, in 2017, French voters faced a similarly dismal choice. Emmanuel Macron ran against Marine Le Pen and I urged voters to “pick the socialist over the socialist.”

Macron prevailed in that race and just won a rematch against Le Pen on Sunday.

I didn’t bother writing about the race ahead of time because it didn’t matter. Neither candidate promoted good ideas.

If you want to know France’s problems, the Fraser Institute’s Economic Freedom of the World is a good place to start.

According to the most recent edition, France ranks #53, which is a very poor grade for a developed nation.

The country’s biggest problem is fiscal policy. Out of 163 nations, it ranks #155 for “size of government.”

That’s even worse than Greece.

And if you look at the historical data from the Fraser Institute, you’ll see that France’s score actually has declined since Macron won in 2017.

Not by much, to be sure, but still a move in the wrong direction. Moreover, given France’s demographic outlook, things will get much worse in the not-too-distant future.

All the more reason why I’m not excited about Macron’s reelection victory.

But what do others say?

If you want a semi-optimistic perspective, the Wall Street Journal opined on the potential implications and seems to think Macron’s heart is in the right place.

The question is whether Mr. Macron will do more in the next five years to make France great again. …Mr. Macron defies traditional political divisions. In his first term he appointed center-right figures to key positions and made progress with tax and labor reform.  …Ms. Le Pen…ran to his left on economics, calling for a wealth tax on financial assets and trade protectionism. …While Mr. Macron showed free-market instincts in his first term, he has tacked to the left recently to shore up support from young and progressive voters. Far-left candidate Jean-Luc Mélenchon says he wants to be prime minister, and the coming National Assembly elections could be decisive in determining the direction of the country. Focusing on pro-growth reform—rather than climate obsessions or populist gestures like limiting executive pay—would help restore the economic vitality that Mr. Macron originally promised. It would also make it less likely for a radical like Ms. Le Pen or Mr. Mélenchon to take power in five years.

For a more negative perspective, here’s a CapX column from 2019, authored by Anne-Elisabeth Moutet.

…tax increases; a ballooning national debt and the highest government spending ratio to GDP in Europe… It’s become harder than ever to pinpoint a specific “Macron line”, but whatever it is, it isn’t a liberal one. …The president’s idea for modernising France’s industry is a mix of high-handed, interventionist industrial policy and a brushed-up reliance on top-down sectoral choices reminiscent of every single one of his predecessors, from de Gaulle onwards. …he announced €5bn investment into Le French Tech from well-coaxed institutional investors, with the aim of creating “25 French unicorns by 2025”. (The irony of having a government programme dedicated to create privately-held tech start-ups valued above $1bn seems to have escaped him). …The president’s policies oscillate according to polling and estimated image gains. As a result, the supposedly “courageous” reforms promised…are…watered down. …Macron believes sincerely in his top-down…plans.

For what it’s worth, I suspect Macron understands that his nation needs pro-market reform, but I also think he isn’t willing to take any risks to make it happen.

P.S. A few years ago, I shared a story that told you “everything you need to know about France.” Here are some excerpts from another story that captures the awful mindset holding back that country.

In less than three weeks, board game lovers in France bought all 10,000 copies of Kapital!, a new game about class struggle, injustice and French politics created by French sociologists. …One player will draw the good lot and fall among the rich; others will be the struggling poor and middle class. All players have to fight their way to the “tax haven” at the conclusion of the board. …The sociologists created the game to raise awareness about social injustice and the gap between the rich and poor. …The game was an instant success, selling out in less than three weeks.

This is almost as bad as the European Commission’s online game that was designed to brainwash children in favor of higher taxes.

P.P.S. Here’s a must-watch video explaining why America shouldn’t become another France.

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I’m in the United Kingdom for the Free Market Road Show and had planned on writing today about the awful economic policies of Boris Johnson, the supposedly Conservative Prime Minister.

Yes, he produced an acceptable Brexit, but otherwise has been a big spender. Sort of the a British version of Trump or Bush.

But I’m going to give Boris a (temporary) pass because I can’t help but vent my spleen about this sign I saw yesterday while touring the Imperial War Museum in London.

As you can imagine, I was irked by this bit of pro-socialist propaganda.

Since when does a government takeover of private industry lead to “a fairer, more caring society”?!?

Maybe that was the intention of the voters who elected Clement Attlee, the Labour Party who became Prime Minister after the 1945 election.

The real-world results, though, were disappointing. Indeed, the sign acknowledges that the post-war recovery was anemic.

But it then put the blame on conscription.

As a sensible Brit would say, this is utter bollocks.

Plenty of other nations drafted men into military service, yet they still managed to enjoy decent growth.

Why did those countries enjoy more prosperity? Because they didn’t copy Clement Attlee’s horrible mistake of nationalizing industry (genuine socialism, by the way).

Indeed, while the United Kingdom was becoming the “sick man of Europe,” West Germany boomed in large part because it went in the other direction, getting rid of dirigiste policies such as price controls.

There is a happy ending to this story.

Margaret Thatcher was elected in 1979 and privatized industries – in addition to other pro-growth reforms such as spending restraint and tax-rate reductions.

As a result, the United Kingdom in a very short period of time managed to overtake Germany in the Fraser Institute’s rankings for economic liberty.

I’ll close with a thoughtful and magnanimous offer.

I’ve corrected the mistaken wording on the sign at the Imperial War Museum. I hereby offer – free of charge – this new version.

P.S. It’s a long program, but I strongly encourage readers to watch Commanding Heights: The Battle of Ideas, which tells the economic history of the 20th century. You’ll learn how Thatcher saved the U.K. economy and how Reagan saved the U.S. economy.

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No sensible person wants to copy the big-spending policies of failed welfare states such as Greece.

Unfortunately, many politicians lack common sense (or, more accurately, they are motivated by short-run political ambition rather than what’s in the long-run best interest of their nations).

So if they decide that they politically benefit by spending lots of other people’s money, they have to figure out how to finance that spending.

One option is to use the central bank. In other words, finance big government with the figurative printing press.

This is what’s know as Modern Monetary Theory.

From a theoretical perspective, it’s crazy. And if Sri Lanka is any indication, it’s also crazy based on real-world evidence.

In an article for The Print, based in India, Mihir Sharma looks at that government’s foolish monetary policy.

Cranks are considered cranks for a reason. That is the lesson from Sri Lanka… How did this tiny Indian Ocean nation end up in such straits? …the Rajapaksas turned Sri Lanka’s policymaking over to cranks… The central bank governor at the time, Weligamage Don Lakshman, informed the public during the pandemic that nobody need worry about debt sustainability…since “domestic currency debt…in a country with sovereign powers of money printing, as the modern monetary theorists would argue, is not a huge problem.” Sri Lanka is the first country in the world to reference MMT officially as a justification for money printing. Lakshman began to run the printing presses day and night; his successor at the central bank, Ajith Nivard Cabraal, who also denied the link between printing money and inflation or currency depreciation, continued the policy. …Reality did not take long to set in. By the end of 2021, inflation hit record highs. And, naturally, the clever plan to “increase the proportion of domestic debt” turned out to be impossible… Proponents of MMT will likely say that this was not real MMT, or that Sri Lanka is not a sovereign country as long as it has any foreign debt, or something equally self-serving.

Professor Steve Hanke of Johns Hopkins University also discussed Sri Lanka’s crazy monetary policy in an article for National Review. And he also offered a way to reverse the MMT mistake.

This slow-motion train wreck first began in November 2019 when Gotabaya Rajapaksa won a decisive victory in the country’s presidential elections. …In total control, President Rajapaksa and his brother Mahinda, the prime minister, went on a spending spree that was financed in part by Sri Lanka’s central bank. The results have been economic devastation. The rupee has lost 44 percent of its value since President Rajapaksa took the reins, and inflation, according to my measure, is running at a stunning 74.5 percent per year. …What can be done to end Sri Lanka’s economic crisis? It should adopt a currency board, like the one it had from 1884 to 1950… Most important, the board could not loan money to the fiscal authorities, imposing a hard budget on Ceylon’s fiscal system. The net effect was economic stability — and while stability might not be everything, everything is nothing without stability.

For readers who are not familiar with currency boards, it basically means creating a hard link with another nation’s currency – presumably another nation with a decent history of monetary restraint.

It’s what Hong Kong has with the United States (even though U.S. monetary policy over time has been less than perfect).

A currency board is not quite the same as “dollarization,” which is actually adopting another nation’s currency, but it’s a way of making sure local politicians have one less way of ruining an economy.

Let’s conclude with a story from the U.K.-based Financial Times, written by Tommy Stubbington and Benjamin Parkin. They provide some grim details about Sri Lanka’s plight.

Sri Lanka owes $15bn in bonds, mostly dollar-denominated, of a total $45bn long-term debt, according to the World Bank. It needs to pay about $7bn this year in interest and debt repayments but its foreign reserves have dwindled to less than $3bn. …Sri Lanka has never defaulted and its successive governments have been known for a market-friendly approach. …Sri Lanka has previously entered 16 programmes with the IMF.

By the way, I can’t help but comment about a couple of points in the article.

The reporters claim that Sri Lanka has been “known for a market-friendly approach.”

To be blunt, this is nonsense. I’ve been dealing with international economic policy for decades and no supporter of free markets and limited government has ever claimed the country was anywhere close to being a role model for good policy.

And if you peruse the latest edition of Economic Freedom of the World, you’ll see that Sri Lanka has very low scores, far below Greece and only slightly ahead of Russia.

And you can click here to see that it has always received dismal scores.

But maybe it’s “market-friendly” by the standards of left-leaning journalists.

I also can’t resist noting that Sri Lanka has already received 16 bailouts from the International Monetary Fund, according to the article.

This is further evidence that it’s not a market-oriented nation.

And it’s also evidence that IMF intervention does not make things better. In many cases, it’s akin to sending an arsonist to put out a fire.

P.S. The Mihir Sharma article also discusses the Sri Lankan government’s crazy approach to agriculture.

Last April, the government followed through on a campaign promise to transition Sri Lanka to organic farming by banning the import and use of synthetic fertilizers. More than two-thirds of Sri Lanka’s people are directly or indirectly dependent on agriculture; economists and agronomists warned that a transition to organic farming on that scale would destroy productivity and cause incomes to crash. …Unsurprisingly, the cranks were wrong. The production of rice — the basic component of Sri Lankans’ diet — and of tea — the country’s main export — sank precipitously.

Needless to say, it’s not a good idea for politicians to deliberately hurt a nation’s agriculture sector.

Just like it’s not a good idea for politicians in places like the United States to deliberately subsidize the sector. The right approach is to be like New Zealand and have no policy.

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Keynesian economics is based on the misguided notion that consumption drives the economy.

In reality, high levels of consumption should be viewed an indicator of a strong economy.

The real drivers of economic strength are private investment and private production.

After all, we can’t consume unless we first produce.*

Not everyone agrees with these common-sense observations. The Biden Administration, for instance, claimed the economy would benefit if Congress approved a costly $1.9 trillion “stimulus” plan last year.

Yet we wound up with 4 million fewer jobs than the White House projected. We even wound up with fewer jobs than the Administration estimated if there was no so-called stimulus.

So what did we get for all that money?

Some say we got inflation. In a column for the Hill, Professor Carl Schramm from Syracuse is unimpressed by Biden’s plan. And he’s even less impressed by the left-leaning economists who claimed it is a good idea to increase the burden of government.

Nobel Laureate economist Joseph Stiglitz rounded up another 16 of the 36 living American Nobel Prize economists to declare, in an open letter, that…there was no threat of inflation. …The Nobelists’ letter showed that those signing had bought Team Biden’s novel argument that its enormous expansion of social welfare programs really was just a different form of infrastructure investment, just like roads and bridges. …The laureates seemed to have overlooked that previous COVID benefits had often exceeded what tens of millions of workers regularly earned and that recipients displaced by COVID were never required to look for other work. While the high priests of economic “science” were cheering on higher federal spending, larger deficits and increased taxes, employers were and are continuing to deal with inflation face-to-face. …The Nobelists assured that we would see a robust recovery because of President Biden’s “active government interventions.” Their presumed authority was used to give credence to the president’s continuously twisting storyline on inflation — that it was “transitory,” good for the economy, a “high-class problem,” Putin’s fault for invading Ukraine, and the greed of oil and food companies… Today’s fashionable goals seem to have displaced the no-nonsense pragmatism that has long characterized economics as a discipline. …Don’t expect a mea culpa from Stiglitz or his coauthors any time soon. …They can be wrong, really wrong, and never pay a price.

The New York Post editorialized about Biden’s economic missteps and reached similar conclusions.

President Joe Biden loves to blame our sky-high inflation on corporate greed and Vladimir Putin. But a new study from the San Francisco Fed shows it was Biden himself who put America on this grim trajectory. …other advanced economies…haven’t seen anything like the soaring prices now punishing workers across America. Which means that the spike is due to something US-specific, rather than global prevailing conditions. That policy, was, of course, Biden’s signature economic “achievement.” …The damage it did has been massive. …inflation…to 7%… Put in concrete terms, a recent Bloomberg calculation translates this to an added $433 per month in household expenses for 2022. And historic producer price inflation, a shocking 10%, guarantees even more pain ahead.

For what it’s worth, I don’t fully agree with Professor Schramm or the New York Post.

They are basically asserting that Biden’s wasteful spending is responsible for today’s grim inflation numbers.

I definitely don’t like Biden’s spending agenda, but I agree with Milton Friedman that it is more accurate to say that inflation is a monetary phenomenon.

In other words, the Federal Reserve deserves to be blamed.

The bottom line is that Keynesian monetary policy produces inflation and rising prices while Keynesian fiscal policy produces more wasteful spending and higher levels of debt.

I’ll close with a couple of caveats.

  • First, Friedman also points out that there’s “a long and variable lag” in monetary policy. So it is not easy to predict how quickly (or how severely) Keynesian monetary policy will produce rising prices.
  • Second, Keynesian deficit spending can lead to Keynesian monetary policy if a central bank feels pressure to help finance deficit spending by buying government bonds (think Argentina).

*Under specific circumstances, Keynesian policy can cause a short-term boost in consumption. For instance, a government can borrow lots of money from overseas lenders and use that money to finance more consumption of things made in places such as China. The net result of that policy, however, is that American indebtedness increases without any increase in national income.

P.S. You can read the letter from the pro-Keynesian economists by clicking here. And you can read a letter signed by sensible economists (including me) by clicking here.

P.P.S. Keynesianism is a myth with a history of failure in the real world.

It’s also worth pointing out that Keynesians have been consistently wrong with predicting economic damage during periods of spending restraint.

  • They were wrong about growth after World War II (and would have been wrong, if they were around at the time, about growth when Harding slashed spending in the early 1920s).
  • They were wrong about Thatcher in the 1980s.
  • They were wrong about Reagan in the 1980s.
  • They were wrong about Canada in the 1990s.
  • They were wrong after the sequester in 2013.
  • They were wrong about unemployment benefits in 2020.

Call me crazy, but I sense a pattern. Maybe, just maybe, Keynesian economics is wrong.

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I’m not a fan of the government-distorted health system in the United States.

Various laws and programs from Washington have created a massive problem with third-party payer, which makes America’s system very expensive and inefficient.

But it’s possible to have a system that is even worse. Americans can look across the ocean at the United Kingdom’s National Health Service.

Our British friends are burdened with something akin to “Medicare for All.”

But it’s even worse because doctors and nurses are directly employed by government, which means they have been turned into government bureaucrats.

And government bureaucrats generally don’t have a track record of good performance. That seems to apply to health bureaucrats, as captured by this Alys Denby column for CapX.

Numbers are no way to express a human tragedy, but those in the Ockenden Report into maternity services at Shrewsbury and Telford Hospital NHS Trust are nonetheless devastating. The inquiry examined 1,592 incidents since 2000. It found that poor care led to the deaths of 201 babies and nine mothers; 94 babies suffered avoidable brain damage; and one in four cases of stillbirth could have had a different outcome. That’s hundreds of lives lost, and hundreds of families suffering unimaginable pain, all on the watch of ‘Our NHS’. …the report is strewn with examples of individual cruelty and incompetence. Bereaved parents…were given excuses, false information and even blamed for their own child’s death. The Health Secretary has said that vital clinical information was written on post-it notes that were swept into the bin by cleaners. …The NHS has a culture of arrogance, sanctimony and impunity.

And here are some excerpts from a 2021 article in National Review by Cameron Hilditch.

The NHS has proven itself comprehensively and consistently incapable of dealing with a regular flu season, something that crops up at the same predictable time of year in every country north of the equator. It has long been obvious that Britain’s single-payer health-care system isn’t fit for purpose even in normal times, much less during a global pandemic. Yet the NHS’s failures are systematically ignored. …age-standardized survival rates in the U.K. for the most common kinds of cancer are well below those of other developed countries, which translates into thousands of needless deaths… The excess deaths that the U.K. is suffering…along with the crushing physical and mental burdens borne by British doctors and nurses ultimately redound to this long-term failure of British culture. By transforming a medical institution into a cultural institution for the sake of forging a new, progressive national identity, Britons have underwritten decades of deadly failure.

This is damning information.

To be sure, mistakes will happen in any type of health system. But when government runs the show, the odds of appropriate feedback are much lower.

If you don’t believe me, click here, here, here, here, here, here, here, here, here, here, here, here, here, here, hereand here.

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When debating big issues such as the size and scope of government, I like to think that facts matter. Maybe I’m being naive, but people should look at evidence before deciding whether to make government bigger or smaller.

And with Biden proposing a big expansion in the size of the welfare state, this is why I regularly compare the economic performance of the United States and various European nations.

After all, if we’re going to make America more like Europe, shouldn’t we try to understand what that might mean for the well being of the citizenry?

With this in mind, I want to share this tweet (based on this data) from Stefan Schubert at the London School of Economics.

The obvious takeaway is that the average person in the United States enjoys much higher living standards (more than 50 percent higher) than the average person in the European Union.

Even more astounding, the United States even has a big 20-percent advantage of the wealthy tax haven of Luxembourg.

By the way, the above data may understate the gap if you make apples-to-apples comparisons.

Nima Sanandaji compared the economic output of Scandinavians who emigrated to the United States with Scandinavians who stayed home.

He found even bigger gaps, one example of which is the data about Swedes in this chart.

Let’s look at one more bit of data.

Another way of illustrating the gap is see how European nations no longer are converging with the United States (and may actually be diverging).

The only good news for Europeans (if we’re grading on a curve) is that there’s been a decline in both the relative and absolute levels of economic freedom in the United States during the 21st century.

If that continues, the U.S. may “catch up” to Europe at some point in the future. Joe Biden certainly is working for that outcome.

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When the Center for Freedom and Prosperity released this video back in 2009, we wanted people to understand the link between big government and big corruption.

Simply stated, unethical people are naturally drawn to politics and unethical interest groups naturally seek to obtain unearned wealth (a process known as “rent seeking“).

The obvious takeaway is that making government bigger is going to mean that these unsavory groups will have even greater ability to engage in corruption.

None of this is a surprise to libertarian-oriented people. And it’s definitely not a surprise to the Washington insiders who benefit from this racket.

But it’s always a surprise when left-leaning journalistic outfits accidentally stumble on the truth. As evinced by excerpts from this story from Jonathan O’Connell and Anu Narayanswamy in the Washington Post.

President Biden’s domestic…drew unprecedented attention from Washington lobbyists and special interest groups last year. The lobbying industry had a record year in 2021, taking in $3.7 billion in revenue as companies, associations and other organizations pressed Congress and the Biden administration over trillions of dollars in new pandemic spending and rules… The jump in 2021, when lobbying spending was about 6 percent higher than 2020, came as the government’s pandemic interventions and record expenditure took center stage, including an additional $1.9 trillion in pandemic relief and a $1.2 trillion infrastructure package.

Needless to say, the explosion of lobbying is a predictable response to politicians having an additional $3 trillion-plus of other people’s money to distribute to their political supporters.

Not to mention the massive expansion of regulation and red tape, some general and some because of the pandemic.

What worries me is that this expansion will be permanent.

Thousands of companies and organizations appeared to hire lobbyists for the first time during the pandemic, as more than 3,700 companies and other groups that spent no money lobbying the government in 2019 paid lobbyists last year. ..,Among the new entrants are dozens of health-care, technology, tourism and recreation companies, including individual museums, theaters and entertainment firms. …Some of those groups may have hired lobbyists as a temporary measure initially but decided to increase their spending as the pandemic continued, said Dan Auble, an OpenSecrets senior researcher. …“I think it’s likely there are some people who came to Washington a couple of years ago and have stuck around, or industries that realized the benefits they could accrue by having an active presence in Washington.”

I’m somewhat nauseated by “the benefits they could accrue by having an active presence in Washington.”

That phrase is like thieves discussing the benefits they could accrue by having an active presence near ATMs.

But notice that I didn’t write that I was totally nauseated. That’s because lobbying is not inherently unethical. There are groups that feel compelled to hire lobbyists merely because they want to protect themselves from being hurt by high tax rates, pointless red tape, and misguided trade rules.

They simply want to be left alone.

Wouldn’t it be nice if we lived in a society where good people didn’t have to worry about predatory politicians (and a world where bad people didn’t have the ability to steal from others by using government?

P.S. Here’s a good video about how Washington gets fat and happy from corruption. And here’s an amusing video about “Kronies.”

P.P.S. I’ve been accused of corruption and I wasn’t upset. That’s because I realize I’m different than most everyone else in Washington.

P.P.P.S. One of the messages in the above video is that you can’t control corruption merely by passing more laws dealing with issues such as campaign finance.

P.P.P.P.S. At the risk of stating the obvious, corruption in Washington is a bipartisan problem.

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Our series on the failure of Bidenomics has touched on four topics.

For our fifth edition, let’s turn our attention to the president’s misguided fiscal policy.

This means analyzing three pieces of legislation.

First, his so-called stimulus was approved last year, adding $1.9 trillion to the nation’s fiscal burden. The president and his team claimed it would lead to four million additional jobs, but the net result was a drop in employment compared to the White House’s own projections.

Second, his costly infrastructure plan also was approved last year, though only a small fraction of new spending was actually for roads and bridges (and even that spending should be handled by state and local governments).

Third, his “Build Back Better” proposal dramatically would expand the burden of government spending – by $5 trillion over the next decade! Along with a plethora of economy-sapping tax increases.

Regarding the third item, the president so far has not been able to convince all Democratic senators to support the scheme. And with the Senate evenly split between the two parties, Biden needs all of their votes to get his plan approved.

With any luck, that will never happen.

So what is the plan wrong? Along with several hundred other economists, I signed on to this letter explaining why Biden’s massive expansion of the welfare state would be bad news for the country.

The most important part of the statement is that bigger government would “reduce the number of people working, badly misallocate capital, and hobble economic growth.”

Based on research from the Congressional Budget Office, the damage would be enormous, reducing worker compensation by $1.6 trillion over the next ten years.

What about the other issues mentioned in the statement, such as debt and inflation?

It’s not good that debt goes up, of course, but that’s a symptom of the bigger problem, which is government consuming a greater share of the nation’s output.

Also, at the risk of being annoyingly pedantic, I don’t actually think Biden’s budget would increase inflation. That only happens if the Federal Reserve adopts bad monetary policy.

That being said, central banks are more likely to adopt bad monetary policy when politicians are following bad fiscal policy. So the core assertion is correct.

P.S. I don’t know whether to characterize this as absurd, pathetic, addled, or dishonest, but Joe Biden actually claimed his budget plan has zero cost.

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Yesterday’s column explained that Biden’s proposals to expand the welfare state were bad news, in part because government subsidies often lead to inefficiency and higher prices.

That’s not a smart strategy when inflation already is at 40-year highs.

President Biden did address the topic of rising prices during his speech, but his approach was so incoherent that even Larry Summers (Treasury Secretary for Bill Clinton and head of the National Economic Council for Barack Obama) felt compelled to share some critical tweets.

This is remarkable. I’ve spent the past three decades fighting against some of Summers’ bad ideas on fiscal policy (he was a big supporter of the OECD’s anti-tax competition project, for instance).

But now we’re sort of on the same side (at least on a few issues) because Biden has embraced a reckless Bernie Sanders-type agenda of budget profligacy, class-warfare taxes, regulatory excess, and crass protectionism that is too extreme for sane people on the left.

Along with a head-in-the-sand view of monetary policy.

In a column for Canada’s Fraser Institute, Robert O’Quinn and I addressed Biden’s strange comments on inflation.

Here’s some of what we wrote on that topic.

After a disastrous first year pursuing an agenda that became increasingly unpopular, President Biden had an opportunity to reset his administration in a centrist direction as part of his first State of the Union Address. But he didn’t. On every domestic issue, he catered to the Democratic Party’s hardcore left-wing activists… Inflation, as Nobel laureate Milton Friedman observed, is always and everywhere a monetary phenomenon. …In his speech, Biden ignored the true cause of inflation. Instead, he offered a grab bag of statist ideas such as aggressive antitrust enforcement, price controls on prescription drugs, and tax credits for energy conservation and green energy—policies that, whatever their merits, have little or nothing to do with inflation.

Our basic message is that Biden ignored the real cause of inflation (bad monetary policy by the Federal Reserve) and instead came up with ideas (either bad or irrelevant) to addresses the symptom(s) of inflation.

We also noted that Biden’s nominees to the Federal Reserve are underwhelming.

Moreover, he has been pushing three controversial nominees to the Federal Reserve Board—Sarah Bloom Raskin, Lisa Cook and Philip Jefferson—who lack monetary expertise and are generally regarded as inflation doves. Raskin’s primary “qualification” is her support for using the Fed’s regulatory powers to divert credit away from oil and natural gas production. Cook and Jefferson have primarily written about poverty and race, which are outside of the Fed’s legislative mandate.

What we need is a president – like Ronald Reagan – who understands that the inflation genie needs to be put back in the bottle and thus pushes the Federal Reserve in the right direction.

Instead, we have a president who thinks it’s a place where left-leaning activists should get patronage appointments.

P.S. If you have the time and interest, here’s an 40-minute video explaining the Federal Reserve’s track record of bad monetary policy.

P.P.S. If you’re constrained for time, I recommend this five-minute video on alternatives to the Federal Reserve and this six-minute video on how people can protect themselves from bad monetary policy.

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More than 11 years ago, the Center for Freedom and Prosperity released this video about the OECD, a Paris-based bureaucracy subsidized by American taxpayers.

As outlined in the video, there are many reasons to dislike the Organization for Economic Cooperation and Development.

As a fan of tax competition, I don’t like the OECD because the bureaucrats persecute jurisdictions with low tax burdens.

But the bureaucracy’s pro-tax harmonization campaign is a symptom of a broader problem, which is that the OECD relentlessly advocates for higher taxes.

Consider the recent publication entitled “Fighting Tax Crime – The Ten Global Principles.” As you can see, nine of those ten principles involve more power and authority for government.

Since I’m not an anarcho-capitalist, I realize some taxation is necessary (ideally only the amount needed to finance genuine public goods).

As such, I don’t necessarily condemn enforcement policies.

But I am irked by a big sin of omission. If the bureaucrats at the OECD should have added an 11th principle about modest tax rates.

Why?

Because the academic literature very clearly shows that low tax rates are correlated with better tax compliance.

And those low tax rates also are better for prosperity, which is something that should be of interest to a bureaucracy with the words “economic” and “development” as part of its name.

Heck, some OECD economists have written about these benefits of low tax rates.

But none of that now matters. The bureaucrats today are totally fixated on carrying water for the world’s uncompetitive, high-tax governments.

Which is why I’m a big fan of defunding the OECD.

P.S. I suppose we should be happy that the bureaucrats acknowledge that taxpayers should have rights.

P.P.S. In the interest of fairness, I’ll acknowledge that the OECD occasionally produces good work. I’ve even favorably cited research from the bureaucracy on issues such as government spending and expenditure limits.

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Is the United States becoming more libertarian? In terms of social tolerance, there are reasons for optimism.

  • The legal harassment of drug users is declining.
  • Legal harassment of gay people has virtually disappeared.

But when looking at economic issues, there are plenty of reasons to be pessimistic.

Since my work focuses on economic policy, I don’t think the country is becoming more libertarian. Instead, I would argue we’re becoming more like Europe.

That’s not the worst possible outcome. After all, European nations rank highly in the Human Freedom Index.

But not exactly progress. And definitely not the kind of society libertarians fantasize about.

That being said, Gerard Baker of the Wall Street Journal writes that America may be on the verge of a “libertarian moment.” He starts by presenting a grim hypothesis consistent with public-choice theory.

The rising fear among American conservatives since the early days of the Covid pandemic has been that the nation would emerge from the crisis significantly less free. …Once introduced, rules almost always get more expansive, seldom more limited. Taxes levied for a temporary exigency become perpetual obligations. Government agencies built to administer some specific function are absorbed into the permanent bureaucracy.When a crisis is over, authorities may relinquish some of the powers they assumed during the emergency, but you can be sure that the government’s writ will run permanently larger than before. Wars, depressions, public-health emergencies lead to bigger government, more rules, more-onerous regulations.

He then suggests there will be a backlash.

Indeed, he thinks it has already started.

But let’s indulge a radical thought for a moment. What if the opposite is true this time? What if the ratchet slips, and rising popular hostility to arbitrary, petty, overbearing and ineffective rules induces a popular backlash? Isn’t it possible that the inconsistency, arrogance and mendacity of the people attempting to order our lives will produce the opposite of their desired outcome? …We have seen it most powerfully at the political level in Virginia… Voters explicitly rejected the attempt to make their children wards of the state, and the new Republican governor, Glenn Youngkin, is in a classic struggle with overweening bureaucrats desperate to maintain their reign of pointless mask-mandate authority. In Florida, Gov. Ron DeSantis appears to be cruising to re-election on a record of actively resisting the authoritarian demands of experts, Democrats and the media. …Perhaps the biggest cause for optimism is that this time people don’t have much cause for faith in the omnipotence of the state. …Instead of Franklin D. Roosevelt, Harry S. Truman, Dwight D. Eisenhower and Douglas MacArthur, we have Joe Biden, Kamala Harris, Anthony Fauci and Rochelle Walensky. If people of this caliber had been in charge in 1942, we might all be speaking German.

I want to believe this political backlash is the start of a libertarian moment, but I’m skeptical.

It’s good that more Americans understand that Washington is filled with venal, corrupt, and incompetent people.

But is that going to lead to pro-liberty reforms?

A few states are doing good things, most notably tax reform and school choice.

But there’s no hope in the near future for good policy from Washington.

Indeed, we’re probably going to see more bad policy. As I wrote at the start of the year, Biden’s horrible “Build Back Better” plan for bigger government is one or two votes away from enactment.

To be sure, the risk of new fiscal burdens may decline if Republicans gain control of Congress in November. But even if one assumes that those Republicans want to do something good, there’s no way they’ll have enough votes to overcome a veto from Biden.

The bottom line is that there is no chance of good policy from Washington until after the 2024 election.

And if we wind up with a typical big-government Republican in the White House, the wait for good policy will be much longer.

P.S. We got lots of pro-liberty reforms in the 1990s with Bill Clinton in the White House and Republicans controlling Congress, so divided government can be a recipe for good results. That being said, I fear Biden is more like Obama, meaning the best we’ll be able to hope for is gridlock.

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Other than just-for-the-fun-of-it election predictions, I generally stick to economic analysis rather than politics.

But I acted as a pundit in this interview about Joe Biden’s waning popularity (in my defense, I also used the opportunity to slip is some criticism of his agenda).

My assertions about Biden pushing a hard-left agenda aren’t new.

I made the same point during the 2020 election campaign.

And I take second place to nobody in criticizing what he’s been doing ever since he got inaugurated.

Indeed, the only thing I’m uncertain about is whether I should be more upset about his class-warfare tax agenda or his proposals to expand the burden of government spending.

And, for what it’s worth, I don’t think my comments about Biden’s leftist ideology are controversial. Not even back in 2020.

For instance, here’s the headline from a Vox column that year by Matt Yglesias.

And here’s a headline from a column that same year by Michael Kazin in the New York Times.

Both of those columns said the same thing – namely, that Biden had embraced a leftist agenda (and both authors were very happy about that development).

I also would direct people to this 2019 Washington Post column by Lane Kenworthy, which observes (with approval) that Democrats have moved to the left.

If you want even more evidence, this analysis from 538 also makes the same point.

And a report from Pew notes that there’s a much bigger gap now between Republicans and Democrats – and it’s almost entirely because the median Democrat is now much farther to the left.

There’s one other point from my RT interview that’s worth highlighting.

I mentioned that we’ve had a strange realignment in the United States. Many rich people have moved to the left while lots of low-income people have moved to the right.

Is this because Democrats are pushing some policies that disproportionately help upper-income people, such as student loan bailouts and expanding the deduction for state and local taxes?

Maybe that’s part of the answer, but I mentioned in the discussion that social and cultural issues are probably the main reason.

In other words, wokeness may be the big dividing line nowadays in American politics – which is not exactly good news for libertarians who want the focus to be statism vs. liberty.

P.S. I also used the interview to explain that Reagan was special because he was able to enact big changes (notwithstanding America’s separation-of-powers system). But unlike other presidents who oversaw big changes (such as LBJ and FDR), Reagan actually pushed through reforms that were good for the nation.

P.P.S. I don’t like the idea of government-financed media, but my philosophical objections haven’t prevented me from appearing on PBS, BBC, and France 24, so I figured it was okay to also appear on Russia Today.

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